The MLS’s Campaign Against ‘Pocket Listings’ Is Serious, With $1,500 Penalties

Last November, the National Association of Realtors (NAR) board of directors voted into existence a “Clear Cooperation Policy” (see below). The rule required all MLSs in the country to implement the policy by May 1st of 2021. Although there were some technical delays, the rule is in full force now and our MLS, REcolorado, is enforcing it with substantial fines for violations. (I know because I’m on the Rules & Regulations Committee.) Many MLS members have already received fines starting at $1,500, with only one warning notice given.

The rule basically says that there can be no advertising of any kind for a listing without making the listing active on the MLS so that all members of the MLS have the opportunity to show and sell it.  If a “for sale” sign is put on a listing or there is a social media ad for it, or any other kind of public promotion of the listing, the agent must put it on the MLS within one business day. Currently that means that if the sign or advertising appears in the morning, it must be on the MLS by 6:30 pm the same day.  If it is promoted in the afternoon, it should be on the MLS the following morning.

A listing can be listed on the MLS as “Coming Soon,” but that means no showing by anyone including the listing agent. Once a showing takes place, it must be changed to “Active” immediately, making it available to other MLS members. Also, if it’s “Coming Soon” on the MLS, there must be a Coming Soon sign rider on the yard sign.

Most NAR rules only apply to NAR members (aka “Realtors”), but since NAR requires all MLSs to implement the rule, it does apply to the thousands of agents who do not belong to a Realtor brokerage. 

The policy was intended to reduce the number of “pocket listings.” A pocket listing is one which an agent withholds from the MLS (i.e., keeps in his pocket) in hopes of selling it himself or herself and thereby not sharing the commission with another agent.

With such stringent enforcement of the rule — other MLS violations carry penalties as small as $25 — you’d think there would be a widespread shift away from agents selling their listings before they are shared on the MLS. 

To see if that was the case, I did some analysis of my own, counting the number of closings entered on REcolorado showing zero days on the MLS. I fully expected to see a drop in the number of such closings.

The first day that a listing is on the MLS, it is shown as 0 days in the MLS. If it is changed to pending (or closed) the same day, one can assume that the listing was not active on the MLS long enough for other agents to set a showing and submit an offer.

Much to my surprise, the number of homes listed as closed with zero days on the MLS has only increased over the last 24 months, as shown by the chart below. In fact, the highest number of such closings has occurred since the rule went into effect.

So what gives? This harsh penalty does not appear to be having the desired effect, but maybe some more publicity about it will create more awareness and more compliance. Agents can be suspended from membership in the MLS after enough violations, basically putting them out of business.

After three violations within the same brokerage, the brokerage itself starts getting penalized, with the fine starting at $5,000, so that should certainly increase the in-house training about the rule. I have made sure that my own broker associates are aware of the rule.

Homeowners can, of course, make their own private deals with a buyer and then call upon an agent to handle the paperwork, which is fine, since there’s no advertising or promotion of the listing by the agent.

Also, there’s a “brokerage exclusion” which allows an agent in a large brokerage to tell other agents within that brokerage about the listing, but that cannot include posting it on social media where other buyers could learn about it. These two work-arounds could explain many of the homes contributing to the chart’s high numbers.

Why Is It Called ‘Clear Cooperation Policy’?

The real estate industry is unlike any other industry I know. Through our many Multi-List Services or MLSs, we members agree to “cooperation and compensation.” In other words, each member agrees to share his/her listings with every other member, allowing them to sell that listing to a buyer, and to be compensated by the listing agent by an amount displayed on the MLS.

I like to compare our industry to the new car business. Imagine if you went to a Chevy dealer and described the kind of car you wanted, and the salesman said, “I think the Ford Explorer would be perfect for you.” The salesman takes you to the Ford dealer, gets the keys, and then joins you on a test drive. If you like it, the salesman writes up the contract and presents it to a Ford salesman, who then gives the Chevy salesman half his commission (which the Chevy salesman then splits with his dealership).

That’s how it works in real estate. The commission earned by a buyer’s agent (who is the selling agent)  is called the co-op commission, short for cooperation.

The MLSs have rules requiring a member to put all their listings on the MLS, typically within 3 business days.  NAR’s “Clear Cooperation Policy” tightens that rule to say that any agent who promotes a listing to prospective buyers in any way (including with a sign in the yard or a social media post) must put the listing on the MLS within one business day.

The NAR policy — now an MLS rule — was instigated by members upset that other members were withholding their listings from the MLS until they were sold, further frustrating both the agents and their buyers looking for homes to buy at a time of especially low inventory.

NAR’s Member Profile Reveals Drop In Realtors’ Median Income

Despite the pandemic and the shortage of active listings, the membership of the National Association of Realtors (NAR) grew by 5.7% in 2020 over 2019. Perhaps it was because people lost their hourly or salaried jobs and moved toward self-employed occupations such as real estate.

Some of those new Realtors just might want to reconsider their career choice when they read NAR’s 2021 Member Profile based on 18,209 respondents. Here are some of the results, bearing in mind that roughly half of licensed real estate agents are not Realtors, a term only members of NAR can use. I consider NAR members (“Realtors”) the agents who are serious about real estate, since Realtor dues are about $500 per year. Licensees don’t join a Realtor brokerage unless they hope and expect to justify that expenditure.

Real estate has always attracted people who perceive it as a high income profession. They don’t realize that the “80/20 rule” applies as much to real estate as it does to any profession. While that rule would suggest that 20% of Realtors earn 80% of the income, it’s actually worse. I would estimate that 10% of us earn 90% of the income.

I’ve been a Realtor for nearly 20 years, so I know a lot of fellow agents, yet it continues to surprise me that most listings in my own city are by agents — usually Realtors — I’ve never heard of.  Looking at the six active listings in Golden as I am writing this column, I’ve only heard of one of the listing agents, and he had only 10 sold listings in the past 12 months. Another of the six had one sold listing, a third agent had two sold listings, and a fourth agent had zero sold listings in the last 12 months. (I had 25 sold listings.)

According to NAR, the sales volume per Realtor dropped to $2.1 million. With our median sales price in Denver’s MLS at $438,239 in 2020, that’s less than five closings per Realtor.

The median gross income of Realtors has never been over $50,000 per year, and it fell 13% from $49,700 in 2019 to $43,330 in 2020, according to the Member Profile. And that is gross income. Realtors are typically self-employed and have lots of expenses, with the median for 2020 being $5,330. That brings the median net income down to $38,000. For Realtors who specialize in residential real estate, the median net income for real estate activities in 2020 was even lower —$23,500. Depending on family size, that is at or below the poverty level!

73% of residential specialists said that real estate activities provided 75% or more of their personal income. 56% of residential Realtors say that it is their only occupation. 29% say it has never been their primary occupation.

Realtors with 16 or more years in the business had a median gross income of $75,000 in 2020, down from $86,500 in 2019. Realtors with 2 years or less in the business had a median gross income of $8,500, compared to $8,900 in 2019.  Welcome to your new profession!

Missing from the NAR report is how many members (who probably thought real estate was their path to wealth) dropped out in their first or second year of membership.

The largest expense for most Realtors is vehicle expenses —$1,200. (My largest expense is, no surprise, advertising!)

Of the respondents to NAR’s survey who specialize in residential real estate, 23% reported no transactions in 2020. Another 32% reported between 1 and 5 transactions in 2020. The median was 4 transactions for males and 5 transactions for females. Notably, the median for White/Caucasian residential Realtors was 7 transactions, compared to between 2 and 3 transactions for other racial groups.

Here are some other findings from the 2021 Member Profile that I found interesting.

The median age of a Realtor is 54, unchanged from when I entered the business (as a 54-year-old) 19 years ago.

The typical Realtor has 8 years’ experience. 17% of residential Realtors said it was their 1st career. 49% said it was their 2nd career, and 34% said it was their 3rd or more.

79% of respondents were “very certain” they would remain in the business another two years.

Most Realtors worked 35 hours per week in 2020, down from 36 hours in 2019. (I work at least 60 hours/week and am still married…)

Text messaging is the top method of communication that members use with their clients, at 93%, followed by phone (90%) and email (89%).

88% of Realtors work as “independent contractors,” meaning they live on commission income alone, have no tax withholding and pay all their own expenses.

Realtors change firms a lot. The median tenure of Realtors with their current firm is five years.

65% of Realtors are females, up from 64% last year. (As I understand it, RE/MAX broke the gender barrier back about 1970. Before that, our industry was virtually all men — and they wore suits and ties to work.)

82% of Realtors own their own home, and 37% own a secondary property.

86% of brokerages are independent, non-franchised, mostly with a single office and typically have only two full-time licensees.

The typical residential brokerage has operated for 14 years. (That’s us! Rita and I founded Golden Real Estate in July 2007.)

Brokerages typically got 30% of their customer inquiries in 2020 from referrals by past clients, 25% from repeat business with prior clients, 10% from their website, and 10% from social media. (Golden Real Estate gets well over 75% of its business from readers of this column, which has appeared every week without fail for over 15 years.)

Firms with only one office typically had 18 transactions in 2018. (Golden Real Estate does much better, closing 45 seller sides and 22 buyer sides in the last 12 months.)

Of respondents to NAR’s survey, 57% were White/Caucasian, 20% were Hispanic/Latino, 16% were Black/African American, and 8% were Asian/Pacific Islander. 60% were female and 38% were male. 89% were heterosexual, 3% were gay/lesbian, and 6% preferred not to say.

Benefit From Knowing the ‘Realtor Advantage’

As you probably know, not all licensed real estate agents are “Realtors.” To be a Realtor, one has to be a dues-paying member of a local Realtor association, which automatically makes the agent a member of the state Realtor association and the National Association of Realtors (NAR).

Many low-producing real estate agents are reluctant to cough up roughly $500 per year in Realtor dues, so they join a non-Realtor brokerage like HomeSmart Realty in Greenwood Village or Trelora Colorado in downtown Denver. Agents with those firms can’t call themselves “Realtors.”

You’ve probably seen TV commercials by NAR saying “Make sure your agent is a Realtor.” Their current campaign features the theme, “That’s Who We R.” Both campaigns stress the point that only Realtors subscribe to the Realtor Code of Ethics. There is no code of ethics for non-Realtors.

In fact, however, violations of the Code, such as failure to disclose negative information about a listing or contacting another agent’s client directly, are also violations of state licensing laws. To me, the greater value of dealing with a Realtor like those of us at Golden Real Estate is our commitment to professionalism and to the industry, expressed in part by our willingness to pay those dues.

NAR’s lobbying on behalf of property rights benefits all agents as it does all property owners, and deserves the support of all licensees.

NAR’s ‘Clear Cooperation’ Policy Is a First Step at Eliminating Pocket Listings

A “pocket listing” is a property which the listing agent does not put on the MLS, hoping to sell it himself or get it sold by other agents in his office. It’s not typically in the best interest of the seller, since the property is withheld from the full universe of potential buyers.

The organizing principle of the Multi-List System, or MLS, is “cooperation and compensation.” Every real estate agent working in the public arena needs to belong to the local MLS, because it’s only through the MLS that the agent can show and sell that MLS’s listings and be guaranteed the “co-op” commission displayed on the MLS.

A listing agent, naturally, would prefer not to give a big slice of the listing commission to the “cooperat-ing” broker who brings the buyer. He or she would much rather sell the listing, keeping the entire commission for him or herself. Meanwhile, other agents (and their buyers) are upset when they don’t have the opportunity to show a new listing and submit an offer, especially when there are so few listings on the market, as is currently the case.

The National Association of Realtors (NAR) took up the issue of pocket listings last year when it adopted a policy called Clear Cooperation. Essentially the policy says that if an MLS member advertises or promotes a listing in any way — including putting a “coming soon” sign in the yard or mentioning it on social media — that listing must be entered on the MLS within 24 hours. It can be listed as “coming soon” on the MLS, during which time it can’t be shown, including by the listing agent. Once it is shown, it must immediately be changed to “active,” allowing all MLS members to show and sell it.

Unfortunately for sellers, who are the big losers with pocket listings, this policy will never be completely effective. That is evident from the fact that over 7% of listings, by my count, are entered on the MLS only after they are sold. Unless a home remains active on the MLS for 3 or 4 days, it’s unlikely that all potential buyers will have had a chance to compete for it.

You may recall the featured listing in last week’s column. It was listed at $375,000, a price consistent with comparable sales, and we received a full-price offer on the first day. Our policy, however, is to get our sellers to wait four days before going under contract. We had 30 showings and received six offers by day four. By being transparent about the offers received, we were able to bid up the property by  more than $55,000 by day four. We did get an offer $35,000 over listing price on day two, but we waited. Our seller benefited from waiting 2 more days.

Sadly, most listing agents haven’t adopted this practice. They sell their listings too quickly, potentially costing their sellers thousands but also frustrating would-be buyers who might pay more. 

I have calculated that in addition to the 7% of listings being sold with zero days on the MLS, 15% are sold after only 1 or 2 days on the MLS.

One technique for minimizing showings by other agents has been to make a listing “active” but block showings with the showing service. Because the listing is “active,” the listing agent can show the property him or herself without technically violating the clear cooperation policy.

Another technique is the “office exclusive” option.  A listing can be marketed within a brokerage without putting it on the MLS. But once any kind of public marketing takes place, the listing must immediately be put on the MLS as either “coming soon” or “active.”

National Association of Realtors Promotes “Pathways to Professionalism”

As you are probably aware, members of the National Association of Realtors (NAR) are sworn to abide by the Realtor Code of Ethics. It’s what separates them from the men and women who are licensed to practice real estate but choose not to pay roughly $500 in annual dues to be a member of the local, state and national Realtor associations.

Golden Real Estate requires all its broker associates to join the local Realtor association, which automatically enrolls them in the Colorado Association of Realtors and NAR. Most of us are members of the Denver Metro Association of Realtors, although agents have the choice of which local Realtor association to join.

In addition to the Code of Ethics is the voluntary and lesser known Pathways to Professionalism. It is a collection of recommended courtesies which all Realtors should embrace, as we certainly do at Golden Real Estate. Here are those courtesies, broken down into three categories. It should be noted that failure to practice these courtesies cannot form the basis of a complaint by fellow Realtors or members of the public. Here they are, highlighting ones I particularly like:

Respect for the Public

1) Follow the “Golden Rule”: Do unto other as you would have them do unto you.

2) Respond promptly to inquiries and requests for information.

3) Schedule appointments and showings as far in advance as possible.

4) Call if you are delayed or must cancel an appointment or showing.

5) If a prospective buyer decides not to view an occupied home, promptly explain the situation to the listing broker or the occupant.

6) Communicate with all parties in a timely fashion.

7) When entering a property ensure that unexpected situations, such as pets, are handled appropriately.

8) Leave your business card if not prohibited by local rules.

9) Never criticize property in the presence of the occupant.

10) Inform occupants that you are leaving after showings.

11) When showing an occupied home, always ring the doorbell or knock—and announce yourself loudly before entering. Knock and announce yourself loudly before entering any closed room.

12) Present a professional appearance at all times; dress appropriately and drive a clean car.

13) If occupants are home during showings, ask their permission before using the telephone or bathroom.

14) Encourage the clients of other brokers to direct questions to their agent or representative.

15) Communicate clearly; don’t use jargon or slang that may not be readily understood.

16) Be aware of and respect cultural differences.

17) Show courtesy and respect to everyone.

18) Be aware of—and meet—all deadlines.

19) Promise only what you can deliver — and keep your promises.

20) Identify your REALTOR® and your professional status in contacts with the public.

21) Do not tell people what you think — tell them what you know.

Respect for Property

1) Be responsible for everyone you allow to enter a listed property.

2) Never allow buyers to enter a listed property unaccompanied.

3) When showing a property, keep all members of the group together.

4) Never allow unaccompanied access to a property without permission.

5) Enter a property only with permission even if you have a lockbox key or combination.

6) When the occupant is absent, leave the property as you found it (lights, heating, cooling, drapes, etc.) If you think something is amiss (e.g., vandalism), contact the listing broker immediately.

7) Be considerate of the seller’s property. Do not allow anyone to eat, drink, smoke, dispose of trash, use bathing or sleeping facilities, or bring pets. Leave the house as you found it unless instructed otherwise.

8) Use sidewalks; if weather is bad, take off shoes and boots inside property.

9) Respect sellers’ instructions about photographing or videographing their properties’ interiors or exteriors.

Respect for Peers

1) Identify your REALTOR® and professional status in all contacts with other REALTORS®.

2) Respond to other agents’ calls, faxes, and emails promptly and courteously.

3) Be aware that large electronic files with attachments or lengthy faxes may be a burden on recipients.

4) Notify the listing broker if there appears to be inaccurate information on the listing.

5) Share important information about a property, including the presence of pets, security systems, and whether sellers will be present during the showing.

6) Show courtesy, trust, and respect to other real estate professionals.

7) Avoid the inappropriate use of endearments or other denigrating language.

8) Do not prospect at other REALTORS®’ open houses or similar events.

9) Return keys promptly.

10) Carefully replace keys in the lockbox after showings.

11) To be successful in the business, mutual respect is essential.

12) Real estate is a reputation business. What you do today may affect your reputation — and business — for years to come.

Happy Thanksgiving! What We at Golden Real Estate Are Grateful for

Thanksgiving has always been my favorite holiday. I’ve long known the value of practicing gratitude, and Thanksgiving reminds each of us to reflect on our blessings, both individually and as members of our larger communities.

And since these columns are published on Thursdays, it has become a tradition for me to pause on this particular Thursday  to write about my sincere gratitude as an individual, as a husband and step-father, as a Realtor, and as an American.

So, first of all, I’m grateful for having this platform to share with fellow real estate professionals and the general public what I know (and continue to learn) about real estate. Yes, I pay for it, but I have been rewarded greatly for the effort, both in terms of financial gain from the business it generates for me and my broker associates, and by the satisfaction it gives me from indulging in my first and favorite profession, journalism.

To be political for just a moment — and it’s sad to think this is political — I’m grateful for the mainstream media which has weathered four years of assault without forsaking journalistic standards. A free press is essential to our democracy, speaking truth to power unflinchingly.

Naturally, all of us at Golden Real Estate are grateful for those buyers and sellers who have entrusted us with their real estate needs. We know that the sale or purchase of a home is often our clients’ biggest single financial transaction, and we don’t take that responsibility lightly.

Real estate is an interesting profession. For most of us, it was not our first profession. In my case, I didn’t even think of becoming a real estate agent until my 50s. When I earned my license, I discovered several interesting facts about the profession, including that the median age of licensees was my age at the time, 54.

I also learned that it takes several years to become successful in real estate and that the average real estate agent has only two or three closings a year, not enough to make a good living. The majority of new agents give up in their first or second year, having wasted money they could ill afford to lose on software, signs, advertising, licensing and association fees, errors and omissions insurance and more.

I’m grateful when I have the opportunity to educate prospective agents about the difficulty of breaking into this profession and can save them the heartbreak of a lost year or two. But I’m also grateful when I am able to help our own broker associates succeed through the leads this column, our website, and our social media attract for us. As broker/owner, I also serve as a mentor and advisor to them, which I find quite satisfying.

I’m grateful for our MLS (Multiple Listing Service), REcolorado, which has made terrific strides toward being one of the best MLSs in the nation. I’m privileged to represent the Denver Metro Association of Realtors (DMAR) on the Rules & Regulations Committee, providing me with insights I’m then able to share in this space.

DMAR, too, has made great strides under its long-time executive director, Ann Turner. I’m grateful to her and the many Realtors who volunteer on DMAR committees, contributing to the high ethics and professionalism of our industry.

Not all real estate agents are members of the Realtor association, but they all benefit from the work that these associations do. We can all be grateful for the work of the National Association of Realtors, to which all the local Realtor associations belong. From its Washington, DC, office, it lobbies Congress to protect property rights and to fend off legislation that is harmful to our profession and in turn to all property owners.

NAR Agrees to More Transparency re: Buyer Agent Commissions

Last week, the Department of Justice simultaneously sued and settled with the National Association of Realtors regarding how brokers representing buyers are compensated and the public disclosure of that information.

As you may know — because I have written about it many times — the seller typically pays the commission of both the listing agent and the agent representing the buyer. The standard listing agreement includes the total commission and specifies how much of that commission will be shared with a buyer’s agent.

In that listing agreement, the total commission typically ranges from 5 to 6 percent, but the amount of that commission that is offered to buyers’ agents is traditionally 2.8% in our market. Our office policy at Golden Real Estate, like that of many brokerages, requires our agents to offer no less than 2.8%, because it has been demonstrated that offering less than 2.8% can result in fewer showings our listings.

Currently, that “co-op” commission is not displayed on consumer-facing MLS websites, but the settlement requires that it be displayed starting in January. Also, agents will be forbidden to tell buyers that their services are “free” or at “no cost to the buyer,” on the premise that the cost of that commission is reflected in the purchase price paid by the buyer.

Under the settlement, brokers who display MLS listings on their websites may not filter out listings which offer less than a specified co-op commission. We have never done that on our website, www.GoldenRealEstate.com

Lastly, the settlement requires that lockbox access be provided to licensed agents who are not members of the same MLS, an issue I have never encountered.

NAR President Apologizes for Past Racist Practices

On his first day as president of the National Association of Realtors, Charlie Oppler said NAR will continue to advocate for equality and inclusion in real estate, and he apologized for NAR policies in the 1900s that contributed to discrimination and racial inequality.

Oppler spoke during the Diversity and Inclusion Summit, issuing a sobering message that sets the tone for his priorities as president of the 1.4-million member organization. “What Realtors did was an outrage to our morals and our ideals.” said Oppler. “It was a betrayal of our commitment to fairness and equality. I’m here today, as the president of the National Association of Realtors, to say we were wrong.”

“We can’t go back to fix the mistakes of the past,” Oppler continued. “But we can look at this problem squarely in the eye. And we can finally say, on behalf of our industry, that what Realtors did was shameful, and we are sorry.”

Oppler recognized the fact that “words aren’t enough,” emphasizing that the association and all Realtors should take “positive action to remedy decades’ worth of inequality.”

We at Golden Real Estate applaud Oppler for his strong statement on this subject.

Click here to read the full NAR press release.

Realtor Code of Ethics to Address Hate Speech

A couple weeks back, I wrote about how the National Association of Realtors is taking fair housing seriously. This week I read in an email newsletter that NAR is proposing changes to its Code of Ethics and professional standards to crack down on racist and discriminatory speech and behavior.

If implemented, the changes would apply NAR’s Code of Ethics and Standards of Practice to all activities, not just those related to real estate, prohibiting hate speech against protected classes. Protected classes under the Code of Ethics include race, color, religion, sex, handicap, familial status, national origin, sexual orientation and gender identity.

Once these changes are adopted, the Code would prohibit all discrimination, not just willful discrimination, against protected classes and would recommend that ethics violations be considered under membership qualification criteria. Ethics violations could also be referred to governmental agencies for action.

 Discrimination would be deemed “particularly egregious” when determining appropriate discipline, which could include termination of membership for up to three years.

Realtor Association Takes Fair Housing Seriously

While it might be popular to think of Realtors as privileged conservatives (mostly Republicans) who put up with but are not fans of federal civil rights laws, quite the opposite appears to be true now. Liberal thinking Realtors are in ascendance.

An August 22 article from Realtor Magazine, the official magazine of the National Association of Realtors, makes this abundantly clear.

In 2018, NAR leadership laid bare at its legislative meetings in Washington, D.C., the organization’s “immutable past support of discriminatory and racist practices [link],” vowing to deepen its commitment to industry inclusivity and equal opportunity in housing.

The Chicago Association of Realtors, headed by an African-American woman, apologized last year for its “historically racist policies that persisted for decades.”

Click on that link above. Unless you miss the “good old days,” you’ll be heartened by what you read. It makes me proud to be a Realtor. The commitment to equality and justice is rock solid.